Mayor Mitch Landrieu’s administration has withheld more than $800,000 in tax revenue from the Downtown Development District in recent years to help pay off the city’s pension obligations, a move the district says violates state law.
The money was stripped from the district’s coffers from 2014 through 2016, according to audits of the district’s finances and documents an outside firm prepared at Landrieu’s request for Mayor-elect LaToya Cantrell’s transition team.
The city withheld the money despite a 2007 Attorney General’s Office opinion that City Hall could not use the district's money to pay the city's state-mandated obligations to pension funds for city clerks, assessors, sheriffs, district attorneys or registrars of voters.
The DDD levies a special property tax to pay for enhanced government services, capital projects and economic development efforts in the area bounded by the Pontchartrain Expressway, Claiborne Avenue, Iberville Street and the Mississippi River.
In 2007, a Louisiana Supreme Court ruling also said the use of dedicated or special taxes — such as those the district collects — for purposes other than those for which they are dedicated by law violates the state’s constitution.
Therefore, “the DDD has in the past and continues to insist that the city must discontinue this practice (of withholding some money) and remit to the DDD any funds which have previously been deducted,” agency officials wrote in the transition document outlining the district’s operations.
The Advocate received the transition documents in response to a public records request. They were prepared by PFM, the consulting firm Landrieu commissioned to analyze the state of each city agency to assist the Cantrell transition.
Asked this week what legal right City Hall had to keep the money, and whether officials intend to return any of it to the development district, Landrieu spokesman Craig Belden said only that officials were examining the district’s claim.
“The City Attorney’s Office is looking into this matter and, after reviewing with the Department of Finance, will determine the appropriate path forward,” he said.
The city’s Treasury Department collects tax revenue on behalf of all local government agencies. The city then distributes that money to the respective agencies, in the amounts to which each agency is entitled.
The fight between the district and the city apparently goes back to Mayor Ray Nagin’s administration, which apparently asked the development district if it could withhold some of the district’s tax money to pay off a settlement reached in a pension fund lawsuit.
The district’s attorney at the time, William Aaron, asked the state Attorney General’s Office if such a move was proper. In 2007, that office cited a state law that allows proceeds from taxes levied by the district to be used only for district purposes.
“Therefore, it is the opinion of this office that the proceeds from the Downtown Development District ad valorem tax can only be used for public improvements, facilities and services, and debt service on bonds of the city issued for capital improvement projects and facilities within the district,” wrote Assistant Attorney General Michael Vallan.
By 2009, the district was having a hard time getting timely information from the city on how much it was actually owed in property taxes, according to a 2009 audit by the firm Postlethwaite and Netterville.
Because the information was so tardy, the district often had to make its day-to-day financial decisions without it. The district didn’t begin to receive timely data from the city until 2015; a year earlier, the district’s auditors began to take note of how much the city was keeping from the district.
From 2014 to 2016, the city withheld at least $823,000 from the district, the audits showed.
The problems with withholding dedicated taxes were also noted in the 2007 Supreme Court ruling in a city lawsuit against the state over the funding of city pension systems. A court majority found that a state law that required the city to fund its pension debt did not allow it to pull from dedicated funds to do so.
In the transition document, the district said it would be happy to meet with Landrieu’s office to discuss how the problem might be remedied.